Managed Care Lawsuit Watch - November 2005

This summary of key lawsuits affecting managed care is provided by the Health Care Law Group of Crowell & Moring LLP. If you have questions or need assistance on managed care law matters, please contact any member of the health law group.

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Cases in this issue:

• Academy of Medicine of Cincinnati v. Aetna Health Inc.
• Georgia Insurance Commissioner proposes to fine United HealthCare of Georgia, Inc.
• In re: Managed Care Litigation
• Medical Associates Health Plan, Inc. v. CIGNA Corp.
• Pagarigan v. Aetna U.S. Healthcare of California, Inc.
• Viola v. California Department of Managed Care

Academy of Medicine of Cincinnati v. Aetna Health Inc. Boone County (Kentucky) Circuit Court No. 02-CI-903 (9/30/05); Court of Common Pleas, Hamilton County (Ohio) No. A0204947 (9/30/05)

The settlement agreement is not presently available in electronic form.

The class action complaint before the Kentucky court is available at: http://www.academyofmedicine.org/lawsuitupdates/KYsuit.asp

The class action complaint before the Ohio court is available at: http://www.academyofmedicine.org/lawsuitupdates/OHsuit.asp

Courts in Ohio and Kentucky have given preliminary approval to a settlement agreement between Cincinnati area physicians and Anthem Blue Cross and Blue Shield. The courts previously approved similar settlements with Humana and Aetna.

The Academy of Medicine of Cincinnati and several other physician groups filed suit in 2003 against Anthem, Aetna, United Healthcare, and Humana, alleging that the payors had colluded to set physician reimbursement rates in the Greater Cincinnati area at anti-competitive, unreasonably low rates. Plaintiffs claimed the low reimbursement rates were partially responsible for a drop in the number of physicians in the area, including physicians in cardiology, neurology, and general surgery specialties.

Under the terms of the settlement, Anthem will incrementally increase its total reimbursements to physicians in the Greater Cincinnati area over three years. In 2005, total reimbursements will exceed 2004 levels by at least $35 million. In 2006, total reimbursements will exceed 2004 levels by at least $55 million. In 2007, total reimbursements will exceed 2004 levels by at least $70 million. According to Plaintiffs' attorneys, these amounts represent an aggregate 33c increase in physician reimbursements.

The settlement agreement also requires Anthem to earmark $2.75 million for a settlement fund. The fund will be used to make one-time, lump-sum $1,000 payments to class member physicians who have retired. The remaining funds will be used to establish a charitable foundation whose purpose will be to promote quality healthcare in the region by facilitating the recruitment and retention of area physicians. Finally, the settlement requires Anthem to pay $9.6 million in attorneys' fees.

Anthem does not admit any wrong-doing or liability. The plaintiff class is required to release all claims it may have against Anthem with regard to the settled claims. In turn, Anthem releases any right it has to force class members into arbitration over the settled claims.

Georgia Insurance Commissioner proposes to fine United HealthCare of Georgia, Inc. Fine announced 10/11/2005

On November 11, 2005, Georgia's Insurance Commissioner announced the scheduling of a show-cause hearing, during which United Healthcare of Georgia will have the opportunity to contest a $2.4 million fine for alleged prompt pay law violations. The proposed fine stems from between 75,000 and 80,000 claims the Commissioner alleges were not paid within the 15 working days required by Georgia law. The Commissioner stated that United Healthcare failed to offer an explanation for the delays. United Healthcare has announced its intention to dispute the fine.

In re: Managed Care Litigation S.D. Fla. MDL No. 1334 Humana settlement granted preliminary approval (10/19/2005)

Humana announced that it has reached an agreement to settle the national class action in which over 700,000 physicians had alleged that Humana and other major managed care companies conspired to systematically underpay the physicians. A federal district court judge granted preliminary approval to the settlement on October 19, with final approval anticipated in early 2006. Six other managed care company defendants have already obtained either preliminary or final approval for settlement agreements in the case.

The physician plaintiffs in the long-running case, titled alleged that the managed care companies violated numerous federal and state laws, including RICO and state prompt-pay laws, in their effort to hold down physician payments. Various lawsuits were consolidated before the District Court for the Southern District of Florida in 2000, and class certification was granted for the federal RICO claim. Among the terms of the settlement, Humana will pay $40 million to the plaintiffs; adhere to a specified definition of "medical necessity"; not engage in certain "downcoding" of claims to a code with a lower-paying rate; give physicians at least 90 days written notice before making material adverse contract changes; continue its ongoing efforts to expedite claims reimbursement to providers; and pay the doctors' legal fees.

Medical Associates Health Plan, Inc. v. CIGNA Corp. N.D. Iowa, No. C04-1025-LRR (October 6, 2005)

An Iowa federal district court determined that a health insurance company was not permitted to unilaterally terminate a group insurance contract with a health maintenance organization ("HMO") after the insurer sold a subsidiary whose employees had utilized the HMO's services.

Medical Associates Health Plan, Inc. ("Medical Associates"), an Iowa HMO, brought an action against CIGNA for breach of a group insurance contract. Medical Associates alleged that CIGNA breached the contract by unilaterally terminating the contract after CIGNA sold a subsidiary whose employees had utilized Medical Associates' services.

In granting Medical Associates' partial motion for summary judgment, the District Court for the Northern District of Iowa agreed that CIGNA's unilateral termination constituted a breach of contract. The court noted that the group insurance contract, which did not permit early termination by CIGNA, was the relevant contract, rather than the subscriber agreement, as CIGNA had argued.

The district court also rejected CIGNA's contention that its subsidiary was the party with whom Medical Associates had contracted. The court observed that CIGNA, not its subsidiary, had signed the group insurance contract and that the subsidiary was merely a third party beneficiary of the contract.

Pagarigan v. Aetna U.S. Healthcare of California, Inc. Cal. Ct. App., 2nd Dist., Div. 7 No. B167722 (10/25/05) (not for official publication)

The California Court of Appeals concluded that California Civil Code § 3428, concerning duties of health care service plans and managed care entities, imposes a duty of care on HMOs that contract out medical care responsibilities and coverage decisions to providers. Specifically, the court determined that HMOs owe a duty of due care to enrollees when choosing providers with whom to contract, and a duty to avoid provider contracts containing capitation terms which "foreseeably require or unduly encourage below-standard care." According to the court, HMOs must avoid contracting with deficient providers or negotiating contract terms which encourage below-standard performance.

Johnnie Pagarigan, a member of an Aetna HMO plan, entered a nursing home after suffering a stroke. While in the nursing home, Pagarigan's condition deteriorated, and she suffered an infection which her children later claimed was caused by negligence. The nursing home allegedly delayed transferring Pagarigan to an acute care hospital in a timely fashion, and Pagarigan died.

Following the death of their mother, the appellants sued Aetna alleging negligence, wrongful death, and elder abuse. They claimed that Aetna, which had contracted with a management services company, which subsequently contracted with several physician groups who, in turn, contracted with the nursing home that cared for Pagarigan, was liable for the denial of care and malpractice allegedly committed by the nursing home.

The trial court dismissed the claims against Aetna, finding that the complaint did not state a valid cause of action. The appellate court affirmed the trial court's dismissal of most of the plaintiffs' claims, but granted leave to amend the complaint to state a cause of action for negligence and wrongful death.

Viola v. California Department of Managed Care Cal. Ct. App., 2nd Dist., Div. 4. No B174466 (10/11/05)

The California Court of Appeals ruled that the California Department of Managed Health Care (the "Department") did not violate the right of health plan participants to a civil jury trial when the Department approved health plan contracts that included mandatory binding arbitration provisions.

The plaintiffs were individual participants in employer-sponsored health plans who could either join a plan with binding arbitration provisions or else forego employer-sponsored health coverage. The plaintiffs sued the Department, alleging that their state and federal constitutional rights to civil jury trials and due process were violated when the Department approved mandatory arbitration provisions. The Court of Appeals affirmed the trial court's dismissal of the plaintiff's claims, finding that California's managed care statute, the Knox-Keene Act, specifically permitted the use of binding arbitration clauses in health plans negotiated by employers for their employees.

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